2024 (6) TMI 774 - HC - Money Laundering

Enforcement Directorate attachment order quashed after underlying corruption proceedings closed under Prevention of Corruption Act

The Karnataka HC quashed an attachment order by the Enforcement Directorate under PMLA. The petitioner and spouse faced proceedings under Prevention of ... Money Laundering - seeking quashment of a attachment order passed by the Enforcement Directorate under the PMLA - predicate offence or not - proceedings against the husband and the wife commenced by registration of a crime by the Lokayukta for offence punishable under Section 13 (1) (e) read with Section 13 (2) of the Prevention of Corruption Act, 1988 - HELD THAT:- The proceedings in the predicate offence i.e., the offence under the Prevention of Corruption Act come to be closed by two orders. One against the wife in the year 2016 and against the petitioner in the year 2023. The proceedings are challenged by the lokayuktha before the Apex Court THE KARNATAKA LOKAYUKTHA POLICE VERSUS LAKSHMAN RAO PESHVE [2023 (9) TMI 1483 - SC ORDER] and there is no interim order of stay is granted - The Apex Court holds that in the event the predicate offence would get obliterated by a competent court of law either by discharge, quashment or acquittal, the proceedings under the PMLA would automatically vanish. The order dated 22.12.2021 passed by the Adjudicating Authority under the Prevention of Money Laundering Act, 2002, stands quashed - Petition allowed. Issues Involved:1. Validity of the attachment order under the Prevention of Money Laundering Act, 2002 (PMLA).2. Impact of quashing the predicate offence on the PMLA proceedings.3. Legal implications of the Apex Court's decision in Vijay Madanlal Choudhary and Others vs. Union of India and Others.Detailed Analysis:1. Validity of the Attachment Order under the PMLA:Background: The petitioners challenged an order dated 22.12.2021 passed by the Adjudicating Authority under the PMLA, following the registration of an Enforcement Case Information Report (ECIR) against them. The proceedings were initiated due to a crime registered by the Lokayukta under the Prevention of Corruption Act, 1988.Court's Observation: The court noted that the wife's discharge application had been allowed in 2016, and the proceedings against the husband were quashed in 2023. The Lokayukta challenged the quashing of proceedings before the Apex Court, which issued a notice but did not grant an interim stay.Conclusion: The court held that since the predicate offence was quashed, the attachment order under the PMLA could not stand. The order dated 22.12.2021 passed by the Adjudicating Authority under the PMLA was quashed.2. Impact of Quashing the Predicate Offence on the PMLA Proceedings:Background: The petitioners argued that since the predicate offence under the Prevention of Corruption Act was quashed, the proceedings under Sections 3 and 4 of the PMLA should also be quashed.Court's Observation: Referring to the Apex Court's decision in Vijay Madanlal Choudhary and Others vs. Union of India and Others, the court emphasized that if the predicate offence is quashed, the proceedings under the PMLA would automatically vanish. The Apex Court had held that the offence under Section 3 of the PMLA is dependent on the illegal gain of property as a result of criminal activity relating to a scheduled offence. If the predicate offence is quashed, there can be no offence of money laundering.Conclusion: The court concluded that since the predicate offence was quashed, the proceedings under the PMLA, including the attachment orders, must also be quashed.3. Legal Implications of the Apex Court's Decision in Vijay Madanlal Choudhary and Others vs. Union of India and Others:Background: The Apex Court in Vijay Madanlal Choudhary and Others vs. Union of India and Others provided a detailed analysis of various provisions of the PMLA, including the requirement of a predicate offence for proceedings under the PMLA.Court's Observation: The court referred extensively to the Apex Court's judgment, highlighting key points such as:- The offence under Section 3 of the PMLA is dependent on the illegal gain of property from a scheduled offence.- If a person is discharged or acquitted of the scheduled offence, there can be no offence of money laundering.- The procedural safeguards and the balancing arrangement provided under the PMLA to protect the interests of the person concerned.Conclusion: The court reiterated that the proceedings under the PMLA would automatically vanish if the predicate offence is quashed. The attachment orders under the PMLA were quashed, with the provision that if the Apex Court restores the predicate offence, the PMLA proceedings, including the attachment orders, would also be restored.Order:1. The writ petition is allowed.2. The order dated 22.12.2021 passed by the Adjudicating Authority under the PMLA stands quashed.3. It is clarified that if the Apex Court sets aside the order quashing the predicate offence, all proceedings under the PMLA against the petitioners would be restored.This comprehensive analysis covers the relevant issues and preserves the significant legal terminology and phrases from the original judgment.